Assurance Vie – The Ultimate Expat Guide 

Understanding Tax-Efficient Savings and Investment Plans in France: Assurance Vie

Many countries, including France, offer tax-efficient savings and investment plans designed to encourage long-term savings and reduce financial dependence on the government. One of the prominent options in France is the Assurance Vie. However, once you become a French resident, you may no longer benefit from the same tax efficiencies available in your home country. This is because French taxes apply to all your income and gains, except those excluded under a Double Taxation Treaty.

Even if some of your income is exempt from French taxes, you still need to disclose it in France. This exempt income is added to your other income to determine your French income tax rate, which can result in higher taxation on other income types, such as investment income.

Tax-free Accounts in France

For short-term savings, France offers various tax-free accounts:

• Livret A: Available to both citizens and non-residents, allowing investments up to €22,950 with an annual interest rate of 3%. The rate was increased in February 2023 from 0.5% to help combat inflation.
• Livret Développement Durable et Solidaire (LDDS): Exclusively for French residents, with deposits up to €12,000 earning an interest rate of 3%, also increased from 0.5% in 2023.
• Livret d’Epargne Populaire (LEP): For French residents with low income, offering an interest rate of 6.1% on deposits up to €7,700 as of 2023.

For medium- to long-term investments, the Assurance Vie stands out as a highly beneficial option.

What is an Assurance Vie?

An Assurance Vie (AV) is a life insurance investment product offering several unique benefits:

• Tax Exemption: Investments in an AV are exempt from French income tax and capital gains tax as long as they remain within the AV.
• No Social Fees: Investments within the AV are not subject to social fees, except for Fonds en Euros, where social costs are deducted annually.
• Flexibility: Unlike pensions, there are no age restrictions on withdrawals.
• Inheritance Benefits: You can leave substantial amounts to beneficiaries free of French inheritance tax.

Millions of French residents use the AV for saving and investing, resulting in billions of Euros managed through French banks and insurance firms. Some non-French companies also offer AV products compliant with French standards, often located in regulated financial hubs like Dublin and Luxembourg. Ensure the company has a French fiscal agent to receive the same tax and inheritance benefits as French products.

Key Benefits of an Assurance Vie

International AV policies offer several advantages over French policies:

• Currency Options: Invest in currencies other than the Euro, such as Sterling and Dollar.
• Diverse Investment Choices: Access top investment management firms and capital-guaranteed funds and products.
• English Documentation: Easier comprehension of policy terms and conditions.
• Transportability: AV policies are often transportable within the EU, maintaining tax efficiency in other EU countries.

The Assurance Vie Process

You can invest a lump sum or make regular premium payments to an insurance firm, which then allocates the funds to chosen investment managers. These investments can be in unit-linked types like stock or bond funds, deposits, or unique financial products. The insurance provider combines these into a collective bond, forming your AV policy.

If you make informed investment decisions, with the help of a financial adviser, the value of your units and AV policy is likely to grow over time. However, understand the level of risk, as the value of unit-linked investments can fluctuate with market conditions.

Can I use an Assurance Vie to have my capital guaranteed?

Fonds en Euros, a common element of French AV, guarantees your capital, interest, and year-end bonus. The fund primarily invests in corporate and government bonds, with minimal exposure to equities and real estate. Interest accrues annually, and the insurance company credits most of your share of the fund’s return as a year-end bonus, smoothing future investment returns.

How do I decide what investments to make inside my Assurance Vie?

A reliable financial consultant can help you understand investment options and your risk tolerance. Advisors provide guidance on how investments work, past performance, and associated risks. Regular follow-up meetings assess investment performance, and your adviser may suggest adjustments based on your evolving situation or new investment opportunities.

Alternatively, you can use a discretionary fund manager who manages your investments to meet your financial goals, based on an agreed-upon mandate.

How are taxes applied to an Assurance Vie?

Withdrawals from an AV are only subject to income tax on the gain component. Tax rates vary based on when premiums were paid:

• Before September 27, 2017: Taxpayer can choose between progressive rates or Prélèvement Forfaitaire Libératoire (PFL) rates (35% for the first four years, 15% for four to eight years, and 7.5% after eight years), plus 17.2% social charges.
• After September 27, 2017: The Prélèvement Forfaitaire Unique (PFU) or Flat Tax applies, with a 12.8% fixed income tax rate plus 17.2% social charges, totaling 30%. The tax rate depends on the contract’s age and capital amount.

If you hold an EU S1 certificate, proving insurance by another EU or EEA nation’s healthcare system, your social charges are reduced to 7.5%.

Tax-Free Allowance and Additional Benefits

After eight years, an AV policy offers a tax-free allowance: €4,600 for single taxpayers and €9,200 for couples, applicable against the gain component of withdrawals. This means no income tax if the gain component of all withdrawals during the year is within the allowance.

For estate planning, AV policies allow you to leave up to €152,500 to each beneficiary without succession taxes. Beyond this amount, the next €700,000 is taxed at 20%, and amounts above that at 31.25%. AV plans are also exempt from stringent French succession laws, allowing you to choose any beneficiary.

Would I benefit from an Assurance Vie?

An Assurance Vie can protect your money and income from unnecessary taxes, offering protection for your loved ones during your life and after your death. However, individual situations vary, so it is crucial to seek competent financial advice before investing in an Assurance Vie.

If you would like a private discussion about your circumstances and available options, please do not hesitate to contact us.